thanks hj. nice find. too bad most everyone is interpreting it the wrong way. this market is nothing like the market of 1982. i don't see why people are foolish enough to believe that it is.
for example:
"Some ways of looking at the market, however, suggest that it is on a par with the 1974 bottom. One yardstick is corporate earnings. When the Dow Jones industrials hit 577.60 in 1974, their price/earnings ratio was 5.8. Today, with the Dow 200 points higher, the P/E ratio is only 6.5. The S.& P. 400 industrials are lower than in 1974. Their P/E is currently 7, compared with 7.2 in 1974."
like i tried to explain to professor buschman. big difference between a pe of 7 and the current pe of around 27!
"A better yardstick is book value, which shows that today's market is no higher than the darkest days of 1974. ''The S.& P. 500 hasn't sold below book, and the Dow hasn't sold more than 20 percent below book since 1932,'' pointed out Morgan Stanley's Mr. Biggs. In 1974, the S.& P.'s price divided by the book value of its component companies was 1.0 while the Dow's was 0.8. Today the S.&P.'s is again 1.0 and the Dow's is a shade lower, 0.78. "
i don't know the exact figure, but i can assure you that the market is NOT trading anywhere near book value, let alone below it.
there are so many other obvious differences as well.
in 1982 stocks had been stagnant or declining for around 15 years. it took 20 years of stagnant stock prices after the important peak of 1901 before a bottom was reached and we started another bull run in 1921. it took 20 years after 1929 before stocks started a large bull run in the 1950's. the recent top was even more obscene than these three important market tops of the 20th century, by just about any conceivable yardstick.
inflation had been rampant during the late 60's and all throughout the 70's, and interest rates topped out at 21%. we were due for a secular round of disinflation. interest rates had plenty of room to come down.
today interest rates are at or near historic lows and we just had 20 years of disinflation/deflation, the total opposite! we are going to see a secular bear market for bonds, and interest rates are going to move much higher, not lower as in 1982!
we are nearing the tail end of a 20 year decline in prices for commodities. i don't think i have to detail the obvious benefits to the economy of low prices. back in 1982 prices were bursting from a bubble and were set to go much lower. sorry folks, not this time!
demographics are far different today than they were in 1982. don't underestimate the importance of this. back in 1982 the leading edge baby boomers were moving into their late 30's and fast approaching their peak earnings years. of course the baby boom lasted until around 1966, so you had a fresh crop of baby boomers at prime ages for stock investing each successive year throughout the 80's and 90's.
today the situation is far more bleak. you have a huge segment of the population that is aging fast and is going to place a great strain on the younger generation to take care of them in their golden years. even if they can take care of themselves with their own money, they may need to withdraw money from their retirement plans (i.e. sell stocks) or at the very least they will become much more conservative in their choice of investments. even just a slowing of inflows from boomers will keep a lid on the market.
i could go on and on with numerous other examples, but i think the point is clear. to try to compare the present situation of today to the market bottom of 1982 is ignorant and naive. to not even acknowledge that there is a high probability that we are set to experience sub-par returns over the next decade or longer tells me that we aren't even close to a bottom.
keep on buying suckers! |
